Funds of IFMR Capital invest in debt instruments of companies that focus on financial inclusion such as microfinance, small business loan finance and affordable housing finance.

Mumbai: IFMR Capital, an impact-focused financial services firm, is planning to set up an overseas fund as it looks to raise capital from offshore markets for investing in businesses focused on financial inclusion, a senior executive of the firm said.

“For offshore investors, we are evaluating setting up a feeder fund in an offshore jurisdiction and this fund will be structured keeping in mind the specific need of international investors,” said Kshama Fernandes, managing director and chief executive at IFMR Capital.

Raising capital from offshore investors is part of the firm’s plans to increase its assets under management (AUM) to around $1 billion in the next four to five years, Mint reported in January.

The funds business of IFMR, which is managed by IFMR Investment Managers, has raised three funds so far and is currently on the road to raising two more. IFMR is aiming to raise up to Rs850 crore across these two funds, including green shoe options. The two funds—IFMR FImpact Long Term Credit Fund and IFMR FImpact Medium Term Opportunities Fund—are targeting to raise Rs350 crore and Rs500 crore, respectively.

Funds of IFMR Capital invest in debt instruments of companies that focus on financial inclusion such as microfinance, small business loan finance, affordable housing finance, commercial vehicle finance and agri-business finance.

Both the funds have achieved their first close recently, said Fernandes.

“Both the IFMR FImpact Long Term Credit Fund and IFMR FImpact Medium Term Opportunities Fund have achieved their first close in March, with a corpus of Rs110 crore and Rs100 crore, respectively,” she said.

Fund-raising is expected to be completed by September, she added. The current fund-raising is directed towards domestic investors. With these two latest funds, the AUM of funds managed by IFMR will cross Rs1,000 crore.

With its latest and largest fund till date—the IFMR FImpact Medium Term Opportunities Fund—the firm has also tweaked its investment strategy.

“Compared to our earlier funds which were passively managed, this fund will see more active management as we target to deliver higher risk-adjusted returns not only through accruals, but also capital gains,” said Fernandes.

While the fund will primarily earn its returns through accruals to minimize interest rate risk, it will actively seek to book capital gains as well when available either through fall in interest rates or rating upgrades of investee companies and the accompanying compression in spreads, she said.

“In all our earlier funds, rating upgrades of investee companies has been a consistent story and we are targeting to capitalize on this for further yield pick-up,” she added.

The differentiated strategy of IFMR Capital for its new funds is also visible in the IFMR FImpact Long Term Credit Fund.

“This is our fourth fund offering and is a unique 10-year close-ended debt fund. While such long tenured funds are common in the equity space, it is unusual for a debt fund to be a 10-year close-ended vehicle. In the Indian AIF (alternative investment fund) industry, most debt funds are three-four years in tenure and target the real estate sector for builder funding,” said Fernandes.

The IFMR group, founded in 2007, runs various businesses, including IFMR Rural Channels, a rural wealth management network that offers a range of financial products and services to individuals and small enterprises; IFMR Capital, which invests in financial inclusion-focused financial institutions with access to debt capital markets; IFMR Investment Managers, an asset management firm; and IFMR Rural Finance, a fin-tech platform.